Preserving Freedom and Federalism: What's at Stake for Americans in the Health Care Debate

Abstract:"Federalism" is no outdated concept. The
founding fathers of the American Republic are the authors of a
brilliant design of the distribution of political power between the
national government and the states. Under the Constitution, the
federal government is responsible for the general concerns of the
republic; the state governments are the custodians of the people's
trusts and are authorized to address their particular concerns.
This is the essence of federalism -- and precisely what is under
attack in the massive health care bills currently under
consideration inCongress. Former U.S. Representative from
Florida Thomas C. Feeney explains what is at stake for every
American.

Many state legislators and governors are rejecting the idea that
Congress and the federal bureaucracy can micromanage either state
health insurance markets or individual and family health care
decisions. The federal government is inherently incompetent in
making such decisions. The wisdom of the founding fathers was
evident in recognizing the inherent limits of political power,
and in constitutionally dividing that power between the officers of
the national government and the officials of the states.[1] It is
increasingly apparent that Congress, crafting massive
trillion-dollar bills with far-reaching consequences, will not
solve the problems that ail America's health care sector, instead
making American citizens, in Alexis de Tocqueville's words,
"minions of an omnipotent government."[2] Indeed, instead of solving
widely agreed-upon existing problems, Congress is prepared to
create new ones.

Not surprisingly, state leaders around the country are
expressing alarm, fear, and anger. The massive Congressional
health care bills currently under debate would impose requirements,
such as mandatory Medicaid expansion, that would devastate
state budgets, eviscerate existing health insurance plans,
undermine current consumer choices and quality of care, and
generally trample on the traditional preeminence that the states,
under current law and the Constitution, have long held in enacting
and improving the regulation of their very different health
insurance markets.

State leaders are making their voices known. The American
Legislative Exchange Council (ALEC), with a membership of 2,000
legislators from all 50 states, recently wrote letters of concern
to Speaker of the House Nancy Pelosi and Senate Majority Leader
Harry Reid. ALEC members noted that, "ALEC is troubled by the
public plan and national health insurance exchange, which we
believe will trample states' rights and lead Americans down the
road to single-payer health care."[3]

These concerns are shared by the policy community as well.
Heritage Foundation analysts, among others, have cautioned Congress
to be mindful of its constitutional responsibilities and the limits
of national power. They urge the national legislature to proceed
with caution and make careful changes in federal tax and health
insurance laws to promote accessible and affordable health
insurance coverage without ruining the highest quality of health
care in the world and nationalizing one-sixth of the American
economy.[4]

Taking a Stand for Federalism

Federal and state legislators alike should go back to the
basics, the traditional principles of American self-government, and
take a firm stand for federalism, a crucial component of the unique
constitutional order of the United States. Congress and state
policymakers should follow the following four principles:

Principle #1: Reject Federal Micromanagement of State Issues
and Encourage Entrepreneurial Health Insurance Reform. Rather
than mandating a uniform system of federally supervised health care
for 300 million Americans in widely divergent circumstances,
Congress should set clear goals for state health reform. Through
federal grants and funding for technical assistance, a routine
feature of many federal-state partnerships, states can design new
means for covering the uninsured, enhancing quality of care and
improving patient satisfaction. They can do this in a variety of
ways, including health insurance market reforms that expand
coverage for low-income working families and new risk-pooling
arrangements that can secure stable private health insurance
coverage for citizens, including the poorest, sickest, and most
vulnerable of the states' populations.

There is strong bipartisan support in Congress for such a
federalist approach, as evidenced by the co-sponsorship of the
Health Care Partnership Through Creative Federalism Act (H.R. 5864)
by Representatives Tom Price (R-GA) and Tammy Baldwin (D-WI).[5] This
kind of legislation should include strict neutrality in
guaranteeing equal opportunities for conservative and liberal
experimentation. There should also be a guarantee to state
officials that if they embark on a new health care policy, they
should be allowed to change course, if necessary, and not be
irreversibly locked into health care policy errors.

Under the federalist principle of the U.S. Constitution,
the 50 states can be "laboratories of democracy,"[6] and
learn from one another's successes and failures. As Tocqueville
wrote in his masterpiece Democracy in America, "The most
favorable form of government ever created to promote the prosperity
and freedom of man was the federalist system."

In 1990, Arkansas Governor Bill Clinton agreed. Before his
election as President, he addressed his fellow governors urging
them to take the lead in developing "pragmatic responses to real
problems" in his foreword to David Osborne's Laboratories of
Democracy.[7]

It is hard to imagine an issue more suitable to innovative
experimentation than the financing and delivery of health care.
Indeed, the potential for resolving some of the thorniest issues in
health care policy highlight the splendor of the American founders'
federalist design. States can make and correct their own mistakes
quickly and effectively while learning and replicating the
successes of others. Multiple experiments in different
jurisdictions tend to improve upon successful reforms while
also teaching important lessons from unsuccessful
experiments.

TennCare. People tend to overlook the obvious. A
federalist balance between state and federal authority has largely
worked in American health care policy. In 1994, Tennessee replaced
its Medicaid program with a managed care program to cover not
only traditional Medicaid beneficiaries, but also lower-income
uninsured residents. In designing and implementing the new program
-- TennCare -- the state made serious mistakes, offering expensive,
heavily subsidized "comprehensive" coverage and attempting to pay
for the resulting dramatic cost increases by adopting severely
restrictive reimbursement policies for the participating health
care plans and providers.[8] TennCare proved destabilizing and
unaffordable;[9] many residents dropped their private
coverage to enroll in the new subsidized program and dramatic
cost escalation overwhelmed the state budget, forcing the
state to scrap the reform. Other states learned the lesson and
rejected the TennCare approach.

WashingtonState. In 1993, Washington state
legislators passed a law that mirrored the Clinton health care
plan of that same year. In fact, Clinton Administration officials
praised Washington as a test case of their own comprehensive
proposals for reform at the national level. The new state law
imposed a massive and powerful new bureaucracy, individual and
employer mandates, more regulation, higher taxes, and a
government-defined standard benefit package that everyone was
required to buy. The legislation was repealed less than two years
later based on massive public dissatisfaction.[10]

Both the TennCare and Washington state models were widely
heralded by proponents of these types of reforms at their
inception; both failed. But both would have been disastrous for all
Americans if they had been adopted nationwide.

While unsuccessful state reform efforts provide policymakers
with cautionary lessons and a sound reason to avoid certain
approaches, successful initiatives offer a treasure chest of
new reform tools. West Virginia, for instance, redesigned its
Medicaid program to provide a choice for patients between a "basic
plan" and an "enhanced plan." The enhanced plan provides
beneficiaries a greater range of benefits in exchange for
entering into a Health Improvement Plan with their physicians,
which requires patients to sign and comply with a "Responsibility
Agreement" in which patients agree to follow their physicians'
instructions to improve their health. Studies from West Virginia
verify that even poor Americans can demonstrate high levels of
health literacy, tend to make wise and informed choices about
health care when given the freedom to choose, and can adopt
healthier lifestyles when offered incentives to do so.[11]

Patient Power in Utah. The state of Utah is in the
process of implementing a new program designed to enhance
accessibility to and choice of private health care.[12]
Just two Utah officials run the program, using almost no new
taxpayer money. The law creates a new "defined contribution"
option for employers to offer coverage to their workers,
administered through an online health insurance exchange. An
employer who elects this option will no longer need to manage a
traditional one-size-fits-all group plan for his workers.
Rather, each worker, during the annual open season, will be
able to choose from a menu of health insurance plans -- while the
arrangement still qualifies as "employer-sponsored" coverage that
is tax-free for workers.

This new coverage option, together with the administrative
functions provided by the exchange, eliminates most of the
obstacles that small businesses face in offering health
benefits to their employees, while expanding their workers' choices
of health care plan benefits and premiums. Employees of small
businesses can shop for health insurance plans that best meet the
financial and health coverage needs of their families. They
can add their employers' contributions (including multiple
employers and their spouses' employers) to their own pre-tax
dollars to purchase the policy of their choice.

Utah is testing the exchange this fall with a pilot group of 136
small-business employers who collectively employ 2,333
workers. The average small business size is 17 employees. The
exchange already features 66 plans offered by three private
insurance companies. So far, 141 additional employers have
requested to be notified when enrollment in the exchange re-opens.
These Utah small-business leaders embrace the new state-based
exchange model because it suits their needs. Nationally, only 43
percent of employers with 50 or fewer workers currently offer
employer-sponsored health insurance, but Utah's rate (32
percent) is even lower.[13]

Killing Innovation. The West Virginia Medicaid program
and Utah exchange program represent very different types of
reforms, yet they share something with each other and nearly
every other promising and successful state-based health care
reform: They would be abolished by the current federal reform
proposals.

While the President and his congressional allies insist that
they are not proposing a federal government "takeover" of
health care, the facts are indisputable. The leading bills
would transfer regulatory control of health insurance to the
federal government, and would crush state innovation and
experimentation. The leading bills would impose federal
mandates on individuals and employers to buy and offer federally
approved packages of health care benefits. The leading bills would
expand government-run health programs, or create a new
government-run health plan to "compete" directly against
private health insurance for the purpose of eroding it. The leading
bills would impose new taxes on middle-class Americans and would,
in their current form, add to the large and growing federal
debt.

There is something even more disturbing that is becoming
evident: hubris. In the face of mounting public apprehension
and opposition to these schemes, Members of Congress are intent on
having their way with the health care of 300 million
Americans, regardless of their wishes in the matter.

Washington politicians promise cradle-to-grave health care
security (on the cheap), guaranteed and ruled by federal authority,
while the empirical evidence from nationalized health care
systems worldwide shows that such promises are delusional. As
early as 1989, British Prime Minister Margaret Thatcher admitted
that Britain's government-controlled care resulted in fewer
doctors, fewer nurses, and that patients can wait weeks in one area
to see a doctor and years in another.[14] A Congress that is
running up trillions of dollars in deficits, creating a $10
trillion national debt, presiding over Medicare and Social Security
systems that are insolvent, and plagued by mounting debt should not
be entrusted with control over every American's health care or
permitted to create yet another unsustainable entitlement.

Principle #2: Empower States to
Preserve Quality and Choice While Reducing Costs and Increasing
Coverage.

Democratic and Republican state legislators will have more
confidence in federal health care reform that respects the
interests of their states and their people, and also respects the
professional relationship that doctors have with their
patients. State legislators can only be helped with federal
reforms that open up health insurance markets and permit a broader
level of choice and competition than exists today. For example, the
federal government should reform regulatory and tax obstacles to
allow organizations, such as churches, unions, and chambers of
commerce, to provide group health insurance plans across state
lines.[15]

Draconian federal mandates imposed on states, whether through
Medicare, Medicaid, SCHIP, or other collective funding mechanisms,
inhibit simple, sensible, and rational state-designed reforms
that would allow families, individuals, and businesses to
design the optimal health coverage at the most affordable cost.
Indeed, federal expansion of Medicare, Medicaid, and SCHIP mandates
may well bankrupt the states in the process.[16]

Federal overreach explains not only some of the groundswell of
popular uprisings at tea parties and congressional town hall
meetings across the country, but also the hostile reaction by
many state legislators to the congressional initiatives. It is
also not surprising that there is a strong freedom-of-choice
movement, evidenced by the introduction of 17 state constitutional
amendments to protect personal freedom in health care around the
country. Among other things, this movement sends a clear message to
Members of Congress that state officials and their constituents are
not going to go along with federal micromanagement of their health
care decisions.[17] As a matter of public policy, whatever
rules Congress imposes at the federal level, Congress should also
allow states the right and the recourse to opt out if they wish to
do so, pursue their own reforms of the health care system (as
Hawaii has done in the past), and protect the legitimate interests
of their own people.

Principle #3: State Officials Should
Adopt Policies that Unshackle Patients from Artificial Restrictions
of Choices.

State legislators and governors must be free to adopt
patient-doctor-centered policies that allow patients to exercise
informed choice. Patients must be empowered to tailor their health
care coverage to their needs and obtain portable (job-to-job)
health insurance. States should restrict the exercise of their
regulatory powers to the establishment of minimum standards and the
prohibition of fraud and abuse, and must fight the paths of
political expediency -- such as federal Medicaid expansion -- that
lead to a single-payer, government-run option, or federally
financed socialized health care.

Allow states to design new health insurance markets,
broaden risk pools and thus reduce the administrative costs for
both individuals and small businesses. States can also create new
risk-adjustment arrangements to help citizens with pre-existing
conditions while reducing the impact of adverse selection that can
undermine the stability of the health insurance markets;

Allow and promote consumer-friendly and tax-advantaged plans,
such as personal Health Savings Accounts;

Promote interstate competition between health care providers by
permitting any citizen of one state to purchase policies in any
other state.

Conclusion

The founding fathers of the American Republic are the authors of
a brilliant design of the distribution of political power
between the national government and the states. The national
government, under the Constitution, is responsible for the
general concerns of the republic; the state governments are
the custodians of the people's trusts and are authorized to address
their particular concerns. This is the essence of federalism.

America's federalist system should not be destroyed in a narrow
ideological hot pursuit of an illusory perfection: a nationalized
health care system that will provide perfect security and will
"bend the cost curve" downward. The massive bills on Capitol Hill
will do neither.

From the inception of the republic, Americans have been
instinctively skeptical of the notion that Washington politicians,
and the national bureaucrats who supposedly answer to them,
are successfully able to micromanage the affairs of tens of
millions of individuals and their families.

Americans desperately need sound common sense and consequential
health care reform. This means a reform that will result in a
measurable expansion of private insurance coverage and control of
cost. There is a great deal of work to do. While guaranteeing
accessibility and controlling the costs of health care, Americans
should reject national micromanagement and let the market work.
They -- and their elected representatives in Congress --
should support major federal reforms that change tax policies that
undercut consumer choice in the health insurance markets and
federal regulatory burdens that stifle state reforms and subvert
patient choice.

The states have a key role to play. State policymakers
should support the growing movement in the states themselves that
support the protection and expansion of patient choice in health
care. State officials should also insist on keeping state control
of health insurance regulation. At the same time, they should take
bold steps to enhance patient choice, and create an environment
that rewards high-quality care from physicians and other medical
professionals. If they are true to their public trust, if they are
to defend the legitimate interests of their citizens, state
officials must stand with their citizens and reject policies that
would put the United States on a glide path to single-payer,
government control of the health care of every American.

The Honorable Thomas C. Feeney is
Senior Visiting Fellow at the Heritage Foundation and former Member
of the U.S. House of Representatives from Florida and former
Speaker of the Florida House of Representatives

Share

"Federalism" is no outdated concept. The founding fathers of theAmerican Republic are the authors of a brilliant design of thedistribution of political power between the national government andthe states. Under the Constitution, the federal government isresponsible for the general concerns of the republic; the stategovernments are the custodians of the people's trusts and areauthorized to address their particular concerns. This is theessence of federalism -- and precisely what is under attack in themassive health care bills currently under consideration inCongress.

Key Points

1 State leaders around the country are expressing
alarm: The massive congressional
health care bills would devastate state budgets,
eviscerate existing health insurance
plans, undermine consumer choice and quality
of care, and trample on the traditional preeminence
of the states.

2 The wisdom of the founding fathers was evident
in recognizing the inherent limits of political
power and in constitutionally dividing that
power between the officers of the national
government and the officials of the states.

3 America’s federalist system should not be
destroyed in a narrow ideological pursuit of
an illusory perfection—a nationalized health
care system that will provide perfect security
and will “bend the cost curve” downward.

4 Congress should support major federal
reforms that reduce tax regulations and federal
regulatory burdens that stifle state
reforms and subvert patient choice.

5 State officials should insist on keeping state
control of health insurance regulation, and
they should enhance patient choice and
reward quality providers.

Key Points

State leaders around the country are expressing
alarm: The massive congressional
health care bills would devastate state budgets,
eviscerate existing health insurance
plans, undermine consumer choice and quality
of care, and trample on the traditional preeminence
of the states.

The wisdom of the founding fathers was evident
in recognizing the inherent limits of political
power and in constitutionally dividing that
power between the officers of the national
government and the officials of the states.

America’s federalist system should not be
destroyed in a narrow ideological pursuit of
an illusory perfection—a nationalized health
care system that will provide perfect security
and will “bend the cost curve” downward.

Congress should support major federal
reforms that reduce tax regulations and federal
regulatory burdens that stifle state
reforms and subvert patient choice.

State officials should insist on keeping state
control of health insurance regulation, and
they should enhance patient choice and
reward quality providers.

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